Premium Portfolio launched

Welcome to a new chapter for your portfolio and Share Advisor - the launch of our Premium Portfolio

In stocks like Lowe’s, Hospira and Berkshire Hathaway, reviewed in special reports, ad-hoc articles and our roadshow presentations over the past few years, we’ve made many successful overseas stock recommendations.

But never before have we committed to providing ongoing, detailed stock research on undervalued international stocks. Until now, that is.

Seeking greater than 10% per annum over long term

The launch of Premium Portfolio offers ongoing coverage of our very best stock ideas from home and abroad. The aim is to deliver long-term returns higher than you would have achieved had you only invested in Australia. In fact, we’re aiming for an absolute return of at least 10% per annum.

We believe we can achieve this because a global reach will allow us to find more and better value opportunities.

Initially, the portfolio’s currency exposure will be split 60/25/15 between the US, Australia and the UK. But if better value emerges in US markets, for example, we could increase that allocation from 60% to 80%, and vice versa. Not far down the track, other countries will be included in our international allocation.

In a year or so we’ll consider launching another portfolio solely focused on international stocks. But for now, Premium Portfolio will consist of our best ideas at home and abroad.

That means our task now is to find more companies with those qualities in short supply in Australia; stocks with first rate business models, excellent managers, good growth prospects and cheap valuations.

Beating the benchmarks

As the initial portfolio will mostly be a US/Australian mix we considered a hybrid of the popular Australian and US indices. But that isn’t clean enough. Instead, we’ll compare the portfolio’s performance to both the MSCI world unhedged Index and the All Ordinaries Accumulation Index.

If we haven’t beaten these indices by a wide margin in five-to-10 years then you’ll know we haven’t done our jobs well. But we’re setting the bar higher than the typical fund manager: If both indices provide an annual return of 3% and the Premium Portfolio outperforms by 2%, we’ll still consider the 5% annual return a failure.

We expect to produce an annual return of at least 10% over the long term. Given current valuations, that won’t be easy in the short-term but now that we can scoop up bargains wherever we find them it’s a realistic long-term goal. The key will be to take advantage of every crisis that comes our way.

The Premium Portfolio’s initial stock picks

You can read about the merits for owning each stock in the portfolio on the website, but let’s take a minute to explain how they’ve come together.

First, because valuations aren’t especially compelling right now, we’re holding plenty of cash (see Table 1). We expect to uncover many more opportunities throughout 2015 and we want to be able to take advantage of them.

Table 1: Premium Portfolio

Company Name

Number of Shares

Price per Share*

Total Cost*

Exchange Rate at Purchase

Total (AUD)

American International Group (NYSE: AIG)

60

USD56.11

USD3,366.60

0.80925

4,160.15

Leucadia National Corp (NYSE: LUK)

140

USD22.63

USD3,168.20

0.80925

3,914.98

Carrols Restaurant Group, Inc. (NASDAQGS: TAST)

430

USD7.60

USD3,268.00

0.80925

4,038.31

Ainsworth Game Technology (AGI)

1,230

2.43

2.988.90

n/a

2,988.90

ASX (ASX)

80

36.75

2,940.00

n/a

2,940.00

Computershare (CPU)

250

11.90

2,975.00

n/a

2,975.00

Monash IVF (MVF)

710

1.40

994.00

n/a

994.00

Nanosonics (NAN)

700

1.42

994.00

n/a

994.00

Transpacific Industries (TPI)

3,500

0.855

2,992.50

n/a

2,992.50

Trade Me (TME)

880

3.43

3,018.40

n/a

3,018.40

Virtus (VRT)

380

7.90

3,002.00

n/a

3,002.00

Subtotal

32,018.24

Cash - USD

38,752.00

0.80925

47,886.31

Cash - GBP

7,930.00

0.52866

15,000.19

Cash - AUD

5,095.00

n/a

5,095.00

Subtotal

67,981.50

Total

99,999.74

* In Australian dollars unless otherwise indicated

Second, so far we’ve invested one third of the portfolio. By the end of February we expect two thirds of the portfolio to be invested, so keep an eye out as we publish a string of Buy ideas. The beauty of our service is that we’ll tell you about new Buy ideas as soon as we find them.

We’ve also opened 4% positions in the three stocks explained in the special report Three US stocks to Buy Now, all of which boast attractive valuations. Next year we expect to find many more companies in the US and elsewhere that can justify similar position sizes.

Unless we enter another crisis and find the 10-12 companies that we just have to own, position sizes beyond 5% will be rare. But the Premium Portfolio will use larger portfolio limits than the maximum portfolio limits assigned to each stock when we’re prepared to take a little more risk. As our maximum recommended portfolio limits are an average of sorts just make sure your portfolio allocations are consistent with your risk tolerance.

Australian allocations favouring growth

The Australian stocks mostly come straight from our current Buy list. There’s some variety here but most aren’t huge dividend payers. The stock prices of these companies have been pushed up, leaving growth stocks more attractively priced. There are better pickings among this crowd.

So there you have it; an initial collection of businesses with portfolio weightings ranging from 4% down to 1%; plenty of cash to invest as we unearth more opportunities; and a currency weighting tilted in favour of the US.

It’s a straightforward plan to protect and grow our capital while retaining plenty of flexibility until Mr Market has another of what the shrinks call an episode. Until then, we’ll be scouring the globe for bargains to ensure we can act quickly while others are panicking.

In the meantime, you’ll receive an email each time we make a change to the portfolio, or you can read about it on the website. As with our other portfolios, performance and strategy reviews will occur twice a year.

I’m thrilled to have you aboard. I’ve long favoured international investing in my own portfolio and I know the extent of the opportunities. It’s going to be a fun and profitable ride sharing them with you.

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